There are different opinions about the cost of renewable energy. Some people still try to say solar is too expensive.

But one thing is clear. All the figures are open for anyone to see. Everybody knows exactly how much is paid over the feed-in tariff to get solar energy deployed.

In contrast, the classic model of financing was: Add up whatever cost the utility had for their equipment, then add on some profit, and then fix electricity prices (requiring approval by a regulator) at a level resulting in that profit.

What exactly is the difference in the solar energy feed-in tariffs?

For one, the feed-in tariffs are reduced all the time, since costs go down. Those costs go down as a consequence of the feed-in tariffs, but they go down. A lot.

In contrast, the costs of fossil fuel or nuclear have not gone down.

Next, the costs were never disclosed in the same way to the consumer that the feed-in tariff does. Electricity bills don’t have a “fossil fuel cost surcharge” or a “new nuclear plant cost surcharge.” The utility just adds up all the costs in the model, without a need to disclose them to the customer.

These are silent surcharges.

And, of course, most of the cost is just ignored. Yes, fossil fuel use leads to larger and more dangerous storms, but I have never heard that anyone damaged by a hurricane sends a bill for the damage to the utility responsible for that damage.

But, arguably, the classic model of financing is rather similar to a feed-in tariff. The regulator looks at actual costs and sets the price.

If so, setting a feed-in tariff for nuclear energy, as the United Kingdom may do according to Gipe’s article, would not be so different from what was done when most of the existing nuclear plants were built under monopoly structures.

The most important difference would be that the feed-in tariff would make the assumptions about costs transparent. That would be progress.

So yes, maybe it would be a good idea to have feed-in tariffs for all forms of electricity generation (except for countries where nuclear is illegal altogether, which would, of course, not have a feed-in tariff for nuclear energy).

3 Comments

I believe with deregulation taking many private utilities out of the generatiom business, feed in tarriffs for centralized generation are obsolete. Generators now take full market risk with the reuslt that they generally seek long term contracts prior to actual construction in order to secure financing. With the low cost of gas, many independent power producers are now facing bankruptcy.

As many proponents of distributed energy point out, the monopoly transmission and distribution costs are what make up most of a typical utility bill. In countries where feed in tarriffs have worked to greatly expand renewables, it is by setting the rate at the local commercial and residential meter that made the feed in tarrif so attractive.

Seems to me that investors favor FITs over SREC trade because they are more predictable, being set and controlled mostly through political channels rather than having an inter-related regulation structure funded by carbon production as SRECs do, which is less predictable and even quite unstable as recent market fluctuations have shown when solar requirements or SACP's are adjusted too freely. It is a learning curve, to be sure, but it favors public and small business participation, which is why big corporations and Ute's are against them.
It is also why nuke power is favored by some investors. It is highly centralized power and can have locked in outside dollar investors that are uncoupled from liability or responsibility though government insurance and subsidy.
I personally prefer investing in something I can control and profit from while providing clean energy.

'the classic model of financing was: Add up whatever cost the utility had for their equipment, then add on some profit, and then fix electricity prices (requiring approval by a regulator) at a level resulting in that profit.' Not quite true. The utility presents it's expected cost of production and marks it up in order to arrive at the regulated price. Generally, regulators set rates that ensure producers have a level of profitability regardless of the reasonable cost, in fact, producers can maximize profits by maximizing their apparent cost - this is a system that rewards inefficiency (as well as a great deal of creative book keeping). You raise an important side bar that, where producers manage to become unprofitable, regulators have a bad habit of taking over their debt, essentially transferring it to the consumers. To a large extent, system operators are driven by an hourly market where they bid for producer capacity. The problem with this market system is that managing price by constraining supply is common and pricing decisions are determined on an ad hoc basis rather than a strategy. Intrinsically, this is a system that promotes mediocre utilization of capacity. FiTs are quite different in that they define a 'reasonable' price on a long term basis. The result is a non-speculative market with a level of price stability and a system where the most efficient and productive producers obtain the highest margin. Importantly, the losers lose. It takes a minute, but think about why we would want the most effective producers to prosper - relative to health of the economy, deployment of best current practice, etc.

Add Your Comments

Professor of German and European law at Aoyama Gakuin University in Tokyo. Author of the book "Energy from the Mongolian Gobi desert" about large scale renewable energy projects in Mongolia, available as a free PDF-file at k-lenz.de/2....